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Fitch Affirms N-45 First CMBS Issuer Corporation, Series 2003-2.

NEW YORK -- Fitch Ratings has affirmed N-45 First CMBS Issuer Corporation, series 2003-2 commercial mortgage pay-through bonds. A detailed list of rating actions follows at the end of this release.

The affirmations are due to continued stable performance at the asset. Scheduled amortization and an increase in the Fitch-adjusted net cash flow have offset concerns about potential lease rollover into a lower rent environment. The revision to Stable of the Outlooks on classes C and D are reflective of stabilizing fundamentals in the submarket and a lease extension for the property's second largest tenant. Future affirmations are expected on the transaction until more is known about leases expiring through 2015, two years beyond the loan's maturity date. The transaction is secured by two fixed-rate loans on the Bankers Hall building and the Royal Bank building in Calgary, Alberta, Canada. The loans are cross-defaulted.

Fitch reviewed year-end (YE) 2010 operating statements and the first-quarter 2011 rent rolls for both of the buildings. The Fitch-adjusted net cash flow has increased approximately 13% relative to the previous review and 29% since issuance, primarily as a result of scheduled rent bumps. As of YE 2010, the combined Fitch adjusted debt service coverage ratio (DSCR) was 2.07 times (x), compared with 1.50x at issuance. The DSCR was calculated based on a Fitch adjusted net cash flow (NCF) and a stressed debt service amount (calculated on the current loan balances and a hypothetical mortgage constant).

Occupancy at the subject properties has remained strong at 97% on the aggregate as of March 31, 2011, in line with historical performance. However, Fitch expects that performance could remain under pressure due to leases expiring into a lower rent environment. Scheduled rollover for the Bankers Hall and Royal Bank Building portfolio over the next several years is as follows:

-- 2011: 10.8%;

-- 2012: 6.0%;

-- 2013: 11.5%;

-- 2014: 13.3%;

-- 2015: 24.3%.

The largest tenant at the complex with 23% of the space, Talisman Energy Inc. (rated investment grade), has leases expiring in 2015. EnCana Corporation, the third-largest tenant at the property (11.2% of the net rentable area [NRA]), recently renewed a portion of its expiring space through 2014. However, EnCana is likely to vacate when its leases expire in 2014 because it has a new headquarters building under construction. The fourth-largest tenant at the property, an international law firm occupying 7.4% of the NRA, is currently a holdover tenant on an 18-month renewal following its May 2010 lease expirations. The second-largest tenant, Canadian Natural Resources, recently renewed its space through 2026 at a lower rental rate. Additionally, Royal Bank of Canada recently shed its higher-rent space.

As part of its analysis of the loans, Fitch stressed the cash flow to incorporate revenues from current leases in place with an additional 25% assumed vacancy factor to account for potential future rollover. While such parameters could indicate potential obstacles to refinancing, the loans were able to withstand this stress at the 'BBB' rating category under these parameters.

The collateral for the Bankers Hall loan is comprised of two 47-story class A office towers (Bankers Hall East and West) adjoining a seven-story retail podium, the historic Hollingsworth Building, which is integrated into the podium, and a parking complex totaling 1.8 million square feet (sf). The Banker's Hall building was 99% occupied as of March 31, 2011, in line with issuance.

The Royal Bank loan is secured by a 24-story, 318,000-sf class A office building connected by the retail podium. As of March 31, 2011, the Royal Bank building was 81% occupied, compared to 93% at issuance. The buildings are located in the center of Calgary's business district and connected to downtown Calgary's 'Plus 15,' a network of above-ground walkways that connect downtown buildings.

As of the July 2011 distribution date, the pool's aggregate certificate balance has decreased 12.1% to C$325.8 million from C$370.6 million at issuance. The loans mature Nov. 1, 2013 and have a weighted-average coupon of 7.17%.

Fitch has affirmed the following classes and revised Outlooks, as indicated:

--C$19 million class A-1 at 'AAAsf'; Outlook Stable;

--C$209.9 million class A-2 at 'AAAsf'; Outlook Stable;

--C$26.8 million class B at 'AA+sf'; Outlook Stable;

--C$26.8 million class C at 'A+sf'; Outlook to Stable from Negative;

--C$43.3 million class D at 'BBBsf'; Outlook to Stable from Negative.

Fitch has withdrawn the rating of the interest-only class IO. (For additional information, see 'Fitch Revises Practice for Rating IO & Pre-Payment Related Structured Finance Securities', dated June 23, 2010.)

Additional information on Fitch's amended criteria for analyzing U.S. CMBS is available in the Nov. 17, 2010 report 'Surveillance Methodology for U.S. Fixed-Rate CMBS Transactions', which is available at 'www.fitchratings.com' under the following headers:

Structured Finance then CMBS then Criteria Reports

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Global Structured Finance Rating Criteria' (Aug. 13, 2010);

--'Criteria for Analyzing Large Loans in U.S. Commercial Mortgage Transactions' (Sept. 27, 2010);

--'Surveillance Methodology for U.S. Fixed-Rate CMBS Transactions' (Nov. 17, 2010).

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547326

Criteria for Analyzing Large Loans in U.S. Commercial Mortgage Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=560805

Surveillance Methodology for U.S. Fixed-Rate CMBS Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=574208

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.
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Publication:Business Wire
Geographic Code:1U2NY
Date:Jul 25, 2011
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